HMRC is trying to lay down the law by publishing a risk based scoring system to decide whether a company is at a low, medium or high risk of being assessed for IR35.  While the principles have been in place for several years and there are many case law decisions it is a radical step to rationalise these.  The risk levels are as follows:

The tests are as follows:

This is a pretty blunt tool, in reality it needs  some of the big number tests to be answered yes in order for there to be any chance of keeping in the low risk band.  It is clearly biased in favour of HMRC and no doubt there will be challenges from PCG and others in the future.  For the full text click on HMRC IR35 Guidance.

These facts are based on our understanding of the latest guidance.  For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

• Growth remains slow running at 0.8% for 2011 but future forecasted increases of around 2% are still expected
• Inflation is expected to fall for the remainder of 2012 and to be close to the Bank of England target of 2% by the beginning of 2013

The government continues its deficit reduction plan and plans no giveaways from the sale of the Post Office whose pension scheme is being taken over by the public sector.  The actual announcements:

Introduction

• There will be an automatic review of the state pension age to keep pace with longer life expectancy
• National Loan Guarantee scheme – to encourage bank lending, the banks reacted to this just before Budget day by offering preferential interest rates and Barclays are even offering a cashback
• Local news – there is a move to look further at airport capacity in the South East, it appears the pressure will be on for an Estuary airport
• New Enterprise zones being introduced in Scotland, Wales and Northern Ireland with opportunity for enhanced capital allowances
• Increased support for life science, aerospace, film and particularly the video game industry
• Olympic news – there will be extended Sunday opening hours for 8 weekends around the Olympics

Entrepreneurs and business

• Small companies corporation tax rate remains at 20%
• The expected “Main corporation tax rate” from 1 April 2012 has been cut by 1% to 24%, and will reduce in the next two years by 1% pa to 22% and will ultimately reduce to 20% – one of the lowest rates in the G20
• Small unincorporated businesses turning over less than £77k will be allowed to submit tax returns on a cash rather than accrual basis

Individuals and families

• The much leaked and politically motivated increase in the rate of personal allowance has taken one step closer to £10k, with an increase to £8105 for 2012/13 (already released) and £9205 for 2013/14
• The “granny tax” – age related allowances are going to be phased out as personal allowance levels approach £10k, any loss will be outweighed by increased state pensions
• 20k taxpayers will receive a Personal tax statement breaking down how much tax they have paid and what it has been used for – a little like the statement we already receive for council tax annually
• Rather than restricting child benefit for higher rate taxpayers, it will only be phased out for earners over £50k in the household, being lost totally by £60k income

High earners

• Stamp duty increase for residential properties over £2m will be 7% (15% where owned by corporate bodies and capital gains tax to be charged on these properties too)
• Top rate of tax to be reduced from 50% to 45% from April 2013, this caused massive distortions and only raised 1/3 of the expected revenues
• A limit on currently uncapped tax reliefs means that anyone claiming over £50k reliefs, a cap will be set at 25% of income – this will restrict the amount high earners can benefit from the reliefs available

Motorists, fuel and duties

• Motorists – vehicle excise duty will increase by inflation for cars but frozen for HGVs
• Fuel duty rises will go ahead but will not be more than inflation unless oil prices fall below £45 per barrel
• Smokers, drinkers and gamblers – Tobacco duties increased by 5% over inflation from 6pm on Budget day, 37p per pack.  No increases in alcohol duties, various measures being introduced to ensure overseas online gambling has no advantage over UK based establishments

More changes will be released over the next few days, but the summary above is based on our understanding of the Budget and you should seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

The decision to change the starting limits for both tax and NI is made every autumn to take place in the following tax year.  The rates are increased every year  partly to keep in step with inflation and partly for socio-political reasons.  Last year there were plans to consolidate tax and NI systems and the point at which tax and NI is charged “should” have been equalised, however this did not happen.  This year there are political pressures to increase the PAYE tax allowance towards £10k so the gap between starting point for NI and PAYE has grown once again.

Directors are in the position where they can decide at what level to pay themselves to draw tax free but still accrue state entitlements.  These changes are as follows for 2012/13:

Lower earnings limit:      £107pw / £464pm / £5,564pa

Primary Threshold:          £146pw / £633pm / £7,592pa

Secondary threshold:      £144pw / £624pm / £7,488pa

So if you are currently paying yourself £589pm, you should be paying under £624pm, I would suggest £620 from 6 April to avoid any possibility of incurring tax through roundings.  This is just below the secondary threshold (employers), providing nothing changes in the budget.

These facts are based on the current HMRC NI rates.  For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

iQ driven to #autotweetup by Scott Brownlee

may be more appropriate, depending on the use it may be free or a low cost benefit.  However if you are looking for a regular family car the benefit is worked out based on list price and CO2 emissions:

• List price is the manufacturers list price and should include cost of any extras, not normally the price you pay for the vehicle
• CO2 emission figure is the number quoted on the registration document, beware of using calculators on price guide sites as these may not be correct (as in example below).  This is translated into a percentage (annually increasing by 1%) which is multiplied by the list price to work out the benefit charge
• Fuel benefit is charged at the same percentage rate on a fixed sum of £18.8k

So if you are looking for a regular sporty family car eg Aug 2010 Vauxhall Insignia CDTi Sri 130 the benefits are as calculated as follows:

• Car benefit – CO2 emissions of 154g/km translate into a 21% rate to which 3% is added for diesel cars.  Based on a list price of £23,395 the benefit is £5381
• Fuel benefit is £18,800 X 24%, £4512
• The cost to the employee as a basic and higher rate taxpayer is £1978 and £3957 respectively
• It is only worth taking private fuel if driving more than 12000/6000 miles pa as a 40%/20% taxpayer (based on £6/gallon and 40mpg)

LFA at 7 Hotel Diner #autotweetup

At the #Autotweetup at the 7 Hotel Diner there were cars from both ends of the spectrum, a Lexus LFA and Toyota iQ, and for comparison purposes the benefits on these would be:

Lexus, list price £330k, emissions 379g/km, so 35%:

• Car benefit – £115,000, fuel benefit £6,580
• Cost to employee as 40% taxpayer £48,632

Toyota iQ 1.3VVTi, list price £12,976, emissions 113 g/km, so 10%

• Car benefit – £1,298, fuel benefit £1,880
• Cost to employee as 20%/40% taxpayer £635/£1,271

There are many choices to be made and the most important issue to consider is what is the car needed for, opening up different opportunities.  This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

• A young couple recently set up a company and providing they can restrict their earnings to £30k pa between they will not have to make any student loan repayments.  They are no doubt hoping that the business will grow so that they will have to be avoiding higher thresholds in the future.
• A recently retired but still working sole trader may benefit from incorporating as by restricting  salary and dividends to £24k they may be able to retain the “age allowance” which could be lost by staying as a sole trader with profits over that amount
• A client wanting to take on a part time staff member for a few hours per week can ensure they qualify for basic state benefits by paying them more than £102pw (£5,304 pa) providing they work enough hours.

While always trying to save clients tax there is no tax free ticket, the old adage “if you earn it you need to pay it” always applies.  Some of the thresholds are shown below which demonstrate the range of income levels which need to be considered day by day:

£5,304                   Pay level at which NI contributions are recognised

£7,072                   Employers start paying NI

£7225                    Employees and self employed start paying NI

£7,475                   Personal tax allowance for individuals

£9,940                   Personal allowance for people aged 64-74

£10,600                Annual exempt amount for Capital Gains tax

£15,000                 Repayment of student loan begins

£24,000                Income limit for age related personal allowances

£35,000                Amount which can be earned paying basic rate tax

£42.5k                   Employees and self employed NI contribution rate reduced

£100,000              Personal allowance starts to get lost

£150,000              50% tax band applies

£325,000              Inheritance tax threshold

This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

Does my project qualify for R&D Tax credits?

1. The project can only qualify if there is
   • not a “readily deducible” solution
   • there is “uncertainty” that it can be completed
   • it will need to be “worked on” for the solution to be reached
   • Under self assessment it is up to the taxpayer to decide whether the project qualifies so there should be a clear paper trail should you wish to claim
   • The advice from the HMRC R&D helpline was to see if there were people in the field and get their opinion on whether
   1. there is a solution available commercially
   2. if so, if there is any doubt that it can be done
   3. provided the research can be

What can I claim R&D tax credits for and how do I claim?

1. Any internal revenue expenditure associated with the project
2. If you use subcontractors you can only claim 65% of their costs for tax credit purposes.  This means you will only get 130% tax relief
3. Relief for capital expenditure should be claimed via the usual capital allowances regime
4. R&D tax credits can only be claimed against corporation tax so are only available to limited companies and Plc’s
5. The relief is claimed either by the corporation tax return or separate letter if that has already been submitted
6. You should be able to prove that the project is R&D and keep detailed summary of expenses

This article is only a summary of the main issues to consider and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

You may have heard about HMRC targeting people carrying on a business on Ebay, or bootsales.  HMRC are always keen to collect additional tax and there is quite alot of case law on the subject.  These come under the heading of badges of trade, and like many decisions this is based on the balance of evidence so each of the points will have an impact on the end result.

Profit seeking motive

Is the ultimate objective to make a profit?  This largely relates to whether the transaction is primarily for personal use or to generate a profit to live on.

Number of transactions

An occasional foray into Ebay or Boot sales although making a little profit does not necessarily indicate a trade, however regular listings or attendances will be stronger evidence of trade, and this is probably the main area that HMRC will be targeting on.

Changes to the asset

If some goods are purchased and changed to make them more marketable for sale this once again is an indicator of a trade.  This could for example be cleaning, polishing or mending some goods as it is this process which generates the profit.

Time between purchase and sale

If the goods being sold have been in the back of the garage or loft for several years and the reason for the activity is to clear them out this is not deemed as a trade, but a speculative purchase at a boot sale which is sold the following week would be a strong indicator of trade.

These are a summary of the main criteria which may be of relevance to Boot Sale sellers and Ebayers but are not exclusive.  HMRC have stated they are going to target this area and they have the resources to do so in order to raise additional taxes.

For more detail including the relevant case law there is a good ACCA article on Badges of Trade.  The details above are only a summary of the main criteria, so seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

Demonstrate the sponsorship is wholly and exclusively for the purposes of the trade

• Show how it will benefit the company
• Ensure there is no private benefit

The purpose of sponsorship should be backed up by evidence

• Where did you hear about the opportunity from? An independent source is better.
• Why did you choose this option?
• Keep copies of correspondence showing the decision process
• Demonstrate how sponsorship will put the company in front of the intended audience
• Show how sponsorship can be exploited in local media
• Make sure sponsorship is mentioned on your website
• Even better if there are backlinks from the sponsored person/event website
• Make the most of these opportunities by branded clothing and banners

Show that it is a commercial decision

• Cannot be relative or close friend
• That you are not necessarily paying full amount sought, there may be a variety of small and big givers
• Geographical closeness – for a Kent based business, sponsoship in Scotland is unlikely to be beneficial
• Have you considered other options?
• If you are sponsoring a novice sportsman rather than an established one, you may want to associae your company with a rising star

It may not be allowable if

• Any capital element – eg purchase of a car, although other allowances may be available
• Any element of entertaining (in the usual way for business expenses)

In summary, provided you can demonstrate it is armslength and can extract some advertising from the local media and on your website (“proud to be supporting”) then this should be wholly allowable.  From a commercial perspective you may also set requirements for number of events attended, or duration of an event in order for you to continue the support.

The full details are in: http://www.hmrc.gov.uk/manuals/bimmanual/BIM42565.htm

The advice above is based on our understanding of HMRC guidelines and may not apply to your circumstances, so seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

• Growth is slower than expected but only by a small amount but the future forecasted increases are still expected
• Inflation will hold at around 4-5% this year but then fall to 2.5% next year then the Bank of England target of 2% in the following year

The starting point for the areas which will affect us all was the statement that UK taxes are too complicated and 42 taxes and reliefs are being abolished and there is going to be a consultation on merging the Income Tax and National Insurance which will reduce bureaucracy for employers and HMRC in administration.  Then onto the actual details:

• Main corporation tax rate will reduce by 2% from April then 1% per annum until it reaches 23% (small companies rate reduction from 21% to 20% from April has already been announced)
• The banker bashing continues as banks will not benefit from this but be subjected to an increase in the bank levy to counteract this!
• To aid the construction industry, encourage jobs and reduce costs of planning, the planning rules will be simplified, the general rule will be planning “will” be granted

Entrepreneurs, business and 50% tax

• Entrepreneurs lifetime relief on gains to be increased from £5-10m
• New and small businesses (less than 10 employees) will be exempt from regulation for three years – further details will follow
• Enterprise Investment Scheme rate of income tax relief to increase from 20-30%
• 50% tax rate is temporary, HMRC have been asked to find out how much this measure actually raises

Property, R&D and Enterprise Zones

• HMRC also looking at tax avoidance on high value properties – both of these measures are looking at making sure all members of society contribute to the tax take.
• £250m commitment to first time buyers of new build property funded from the bank levy, should help 10,000 people
• To encourage R&D, the tax credit will rise to 200% for small businesses from April
• 21 New Enterprise zones will be created in England, 11 were announced and 10 more to follow in the summer.  Following my meeting with Gravesham BC this morning they are hoping Thames Gateway will be one of them

Individuals, charities and motorists

• For pensioners the state pension increase will have an automatic mechanism for annual increases rather than relying on inflation as at present.  Also there will be a simplified state pension system offering a £140pw basic pension
• For charities gift aid claims will be simplified from 2013 to make it easier for them to claim the relief they are due
• To encourage a giving society if you leave more than 10% of your estate to charity your rate of IHT will be reduced by 10% (ie 40-36%)
• For families – council tax has been frozen across the country and child tax credit will increase.
• The already announced £1000 increase in personal tax allowance will offset the increase in NI for lower earners announced by the Labour government.  For 2012/13 the allowance will increase by £630 to a little over £8k and this will not push more people into higher rate tax.
• Smokers and drinkers – Tobacco duties will increase as previously announced and there will be no changes to alcohol duty increases to those previously announced

Motorists and fuel

• Motorists – vehicle excise duty will increase by inflation for cars but frozen for HGVs
• Approved mileage allowance increases to 45p from 40p per mile and also applies to volunteers for charities, this is the first change since 2002!
• The fuel duty increase which was planned for 1 April has been removed and there will be  a 1p reduction from 6pm today funded by a fair fuel stabiliser levied on the petroleum industry
• The full HMRC Overview of Tax Legislation and Rates can be found at http://www.hmrc.gov.uk/budget2011/overview.pdf

The summary above is based on our understanding of the Budget and you should seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

If you live in one home from the time you buy it to the time it is sold this will be your principal private residence.  However circumstances do change and if the do so what are the rules?

If you do have to move away, or cannot move in straightaway

• Providing you only own one home you will still get full relief if:
  • You worked overseas
  • You worked in the UK but too far to live at home – for a period up to 4 years
• You get pro-rata relief for all of the time the house is your PPR
• Providing you have lived in the house “at some time” you always get the last 36 months of ownership (there is no restriction on this)
• There is also letting relief which is the lower of:
  • £40,000
  • the amount of Private Residence Relief due
  • the amount of gain you’ve made on the let part of the property
• To avoid no relief being given where you cannot sell a previous home, you still get relief if you move in within 12 months.

There are some exceptions to full relief however:

• The area of your home and garden are large
• You have used part of your home for business purposes only
• Any letting not covered by letting relief
• You bought it as an investment to make a quick profit

As the sale of a property may well mean that your total income is within the higher rate tax band you may also wish to refer to a June 2010 blog on the capital gains tax rules: http://awaccs.co.uk/tax-advice/capital-gains-tax-new-rules-2010.  The link on HMRC website is as follows: http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

The advice above is generic and may not apply to your circumstances, so seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”